When loyalty programmes backfire: loyalty, entitlement and complaints

Disappointed customers complain. And while really loyal customers may be more forgiving that others, when they do feel disappointed and complain, they are particularly difficult to recover. These general truths of business make it particularly important to understand disappointment in loyal customers.

Researchers Xiaofei Li, Baolong Ma and Chen Zhou conducted a study about the link between customer loyalty and customer complaints in the airline industry. While this study has some methodological limitations (e.g., it relies on a sample of MBA students), it nonetheless offers some interesting and surprising (to me) findings about the role of type of loyalty reward in this relationship.

In terms of the link from customer loyalty to customer complaints, they concluded that the more a customer recommended the airline to others and the stronger the preference towards the airline, then the higher the expectations that that customer had in terms of service and effort from the airline. I.e., customer commitment is associated with a sense of entitlement.
Furthermore, the higher their sense of entitlement, the higher the likelihood that customers will complain when service fell below their expectations.

More interesting than the above finding, in my view, is the researchers’ exploration of the role that different types of loyalty reward on the sense of entitlement and, consequently, complaints. The authors write:

“Practitioners and researchers divide the benefits of loyalty programs into hard benefits and soft benefits. Hard benefits are generally tangible rewards, such as earning miles/points, discounts, and gifts, whereas soft benefits include special privileges, such as restricted check-in counters, special communications, and priority on wait lists”. (p.863)

The authors found that soft rewards amplified the link between customer commitment and sense of entitlement, whereas hard rewards reduced it.

In other words, using programmes that stratify customers (e.g., platinum vs gold level), and which use status-based rewards such as access to a VIP lounge, exclusive phone line or dedicated check-in line can backfire. That’s because customers who see themselves to be in the highest levels of the company’s customer hierarchy, go on to feel entitled to services that match their perceived high standing.

Conversely, offering tangible rewards such as miles, free upgrades or gifts tended to lower the sense of entitlement. The authors argue that this is because such rewards have some economic value which are seen as being a reward for previous spending by the customer (as opposed to being tied to identity).

Some food for thought here, in terms of the pitfalls of customer loyalty, and the challenges of designing an effective customer loyalty programme.